#102 The Debt Ceiling

The Christian Economist

#102 The Debt Ceiling

Federal debt is stealing.  It limits freedom.  And, it assumes US Treasury bureaucrats are not fallen. 

The debt ceiling provides some protection against governmental excess. 

Life is full of grand promises that never come true.  Sweets without calories.  Energy that’s free. A perpetual motion machine.  This week, Treasury Secretary Janet Yellen promised spending without debt limits. 

Thomas Sowell once said, “At one time you had a lot of people who hadn’t had any economics saying foolish things. Now you have well-known economists saying foolish things.”

In my Economics class at Dallas Baptist University, I often make this little presentation.  There are no one-armed economists, because she will always say, “On the other hand.”  Except one of the world’s most admired economists, Janet Yellen, this week said there is no “other hand.”  I won’t apologize for quoting Thomas Sowell twice in a minute.  He said, “There are no solutions, only trade-offs.”  The better you get at understanding those trade-offs, the happier you will be. 

The Only Abundant Element

You see, economics is about making choices in an environment of scarcity.  In the first session of my econ class, I quote Austin Hill writing in the book The Virtues of Capitalism, where he explains being in a seminar where the leader asks, “What is not scarce?”  The author says he offered that his salvation is not scarce.  In class, we try to track salvation to its source, and we arrive pretty quickly at the concept of love.  God loves us, so He offers salvation to all of us.  Of course, some don’t accept, but if it was forced, it wouldn’t be offered, and it wouldn’t be love.  By the rules of reason, it can’t be forced, that would not be love.

When our first grandchild was born, we loved her.  We didn’t have to divide our love when the second was born, nor the third, fourth, fifth, sixth or seventh.  You see, love MIGHT be the only non-economic element in the world.  For God so loved the world, that He gave his only begotten Son, that whosoever believes in Him should not perish, but have eternal life.  That’s John 3:16.  

Money is Scarce

Love is abundant.  Everything else is scarce.  Finance is the economics of money.  When you spend it on one thing, you can’t spend it on another.  I was humored by Barack Obama.  During his Presidency, he complained about having to work with Congress to continually raise the US debt limit.  He thought it would be easier to just eliminate it.  Uh-huh, like that chocolate and perpetual motion machine I mentioned a few minutes ago.  

Do you realize how foolish these ideas are?  Let’s follow the path of this idea, just for a few steps.  First, their assumption is that what the government does is so important, it should not be limited by that pesky debt ceiling.  Ok, what does the government do?  Well, defense is good.  If you eliminated the limit on spending at the Pentagon, they would simply shovel money out the door for more improvements in defense systems.  How about my industry, education?  Administrators and teachers would receive a salary increase.  Followed by….guess what?,,,,ANOTHER salary increase.  Why would you stop?  And where?  If the government is not limited, then why would you stop?  

You can see that this leads to the end of the US dollar, and the end of Representative Democracy as we know it, very quickly.  

Checks and Balances

Here’s how it works.  Article I Section 8 of the Constitution gives Congress the authority to “borrow money on the credit of the United States.” It doesn’t permit wholesale delegation of that core legislative power to the executive branch.  Why did the founders not give that power to the executive branch?  The fallen nature.  The founders had a clear understanding of it.  Janet Yellen does not.

You see, government bureaucrats like Ms. Yellen are good at seeing the fallen nature of businesspeople, but fail to see it in themselves.  There’s something about getting the log out of your own eye, before looking for the speck in your neighbor’s eye.  All humans have a fallen nature.  That’s why the founders set up a three-branch government with checks and balances. 

For a century and a half, Congress properly exercised its borrowing power by prescribing the amount and type of debt to be issued by the Treasury. In 1939 Congress switched to legislating only the amount, and allowing the Treasury to determine the type of debt.  If the Treasury department were given an unlimited amount, that would violate the separation of powers that is based in the Christian Worldview assumption. 

The Treasury undoubtedly has far more expertise than Congress in selecting the type of debt, so it’s appropriate to leave those details to the executive branch. Ultimately it is Congress that determines the amount of the national debt.  Suspending the limit removes any restraint from the Treasury.  This is why the Christian worldview is so important.  Why would you remove restraint from a fallen person?  You see, where you start is a great predictor of where you end up.  If you start with the assumption that government bureaucrats are NOT fallen, you will give them unlimited spending authority.  Sounds like a bad idea to me. 

Pay no Attention to the Man Behind the Curtain

That advice from The Wizard of Oz could be applied very aptly to the recent goofy suggestion about the Treasury minting a trillion dollar platinum coin for deposit at the Federal Reserve Bank, to allow the Treasury to spend against that collateral.   Here is Ms. Yellen’s response, “It’s really a gimmick.  It’s equivalent to asking the Federal Reserve to print money to cover deficits that Congress is unwilling to cover by issuing debt.  It compromises the independence of the Fed, conflating monetary and fiscal policy.”  For my view on the independence of the Fed, I will refer you to podcast #62 titled, The End of Fed Independence.  Ms. Yellen is concerned about the “conflating” which has already occurred.  The Fed owns about five and half trillion of the $22 trillion in federal debt that is held by the public.  After paying their operating expenses, they remit the remaining interest to the Treasury, about $87 billion last year, and it’s estimated to be over $100 billion this year.  Yet, Ms. Yellen takes the line from Captain Renault in the movie Casablanca.  As he receives his winnings literally behind his back, he shouts, “There’s illegal gambling taking place in this establishment!”  So much for Ms. Yellen’s “conflation” concerns.  

The Fed and Treasury are even closer friends than Rick and Captain Renault in Casablanca.  While Ms. Yellen was Chairman of the Fed, during the 2011 budget standoff, she privately conspired with Treasury officials on a plan to make on-time payments on Treasury debt and delay paying other government bills if the Obama administration and Congress failed to raise the debt ceiling.  The Fed, under Ms. Yellen’s leadership, was even prepared to make the payments FOR the Treasury officials. 

Pay The Most Important Bill First

Washington lawmakers have acted 25 times since 1993 to raise or modify the federal debt ceiling.  And they will do it again.  The alternatives are not pretty. 

Treasury could confront the possibility of using available cash to pay certain parties over others, such as paying interest to bondholders before sending out Social Security payments.  In fact, Federal Reserve and Treasury Department officials considered this during a previous run-up against the debt ceiling during the Obama administration.  Imagine that: The Federal government would have to decide which bills are paid first.  A hard choice that many of the nation’s 330 million Americans have made in their personal financial dealings.  But, you see, there are “Rules for Thee, but not for me.”  And that means that what the government is doing is so important, priorities cannot be arranged like the little people must do.  

Raising the debt ceiling allows the Treasury to raise money to pay for expenses the government has already authorized. Only a third of federal spending is discretionary, which Congress approves through annual appropriations bills. The other two-thirds is automatic spending on programs such as Medicare, Medicaid and Social Security.

The fact that Democrats control the House, Senate, and Presidency means they can increase the debt limit without Republican help.  That they refuse to do so is a subject I will leave for political commentators, while I attempt to remain on the Christian Economics side. 

My sophomores at Dallas Baptist University are old enough to have voted in only one national election.  Before that, as American citizens, their debt was increased without their consent.  Each American citizen owes about $87,000 in federal debt.  So about $85,000 of that was accumulated by government officials – for my sophomores -before they could vote.  

In Biblical Economic Policy, Sergiy Saydometov and I found ten Biblical Commandments of Economics.  National debt violates three of them.

First: People should be free.  Debt enslaves people.

Second: Don’t steal.  National debt is stealing from future generations.  

Third: Use Honest Measures.  Debt debases the currency, so it’s not an honest measure.

The only one of the Ten Commandments we found that supports national debt is the commandment to Honor Those in Power.  That’s rather hard to do, when their actions violate so many of the concepts of Christian economics. 

I began this podcast mentioning other-worldly ideas like sweets with no calories, then later mentioned the Wizard of Oz and Rick in the movie Casablanca.  So I’ll close with a quote from a Western philosopher.  Ok, he’s a COUNTRY western philosopher.  Alan Jackson sings, “Here in the real world, it’s not that easy at all.”  That’s philosophy that our economic leaders should consider. 

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